The Precious Metals Week in Review – May 1st, 2020

1. COVID-19 and the headlines surrounding the battle against it continue to be the primary headwind affecting all markets. Volatility should be expected to remain extreme as uncertainty surrounding how fast the virus can spread turns into uncertainty surrounding the efficacy of the treatments that target the illness caused by the virus.

The Precious Metals Week in Review – May 1st, 2020.

2. The seasonally adjusted number of Americans filing initial claims for state unemployment was down yet again for the week ending April 25, falling by 603,000 claims from the previous week’s revised level to reach 3,839,000 claims. The previous week’s claims level was revised higher by 15,000. The four-week moving average of claims dropped this week, plunging by 757,000 from the previous week’s revised average to reach a new level of 5,033,250. The previous week’s moving average was revised higher by 3,750 claims. Unemployment data can be expected to remain extremely volatile as the nation continues reopening its economy. Issues with antiquated unemployment systems at the state level remain, so data revisions to the weekly numbers should be expected to occur well into the foreseeable future. The 6-week total of unemployed Americans has now reached well over 30 million.

3. The Federal Reserve held its Federal Open Market Committee meeting this week and chair Jerome Powell took questions in a virtual conference instead of holding the usual press conference after the meeting concluded. Chair Powell said that the Fed has pledged to keep rates near zero until both full employment and inflation return to “normal” levels. In its statement, the Fed said “The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term. The committee expects to maintain this target range [at or near 0] until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”

4. Gross domestic product in the U.S. contracted by 4.8% in the first quarter according to data released on Wednesday and the data is expected to only get worse once the final revisions come in. Economists expect the Q1 number to be sharply lower and are also projecting that the decline in Q2 will be unlike anything that the U.S. has ever seen in its history. Non-Farm payrolls data will be released next week and Federal Reserve Chair Jerome Powell said at his virtual press conference after the Federal Open Market Committee meeting concluded on Wednesday that the Fed expects unemployment levels to rise to over 10%, up from March’s level of 4.4%. Other economists are projecting that the Non-Farm payrolls report for April could show a plunge in payrolls by as much as 2.25 million and an unemployment rate of over 15%.

5. U.S. manufacturing plunged to its lowest level in 11 years with the ISM Manufacturing Index falling to 41.5. Any number below 50 indicates contraction in the manufacturing sector. The reading is down sharply from March’s level of 49.1 but was not as bad as economists’ projections for a reading of just 35. As the nation begins to attempt an economic reboot, we may see the manufacturing sector slowly return to growth.

6. Seemingly at odds with constant news reports of overwhelmed hospitals, health care spending in the U.S. plunged by 18% in the first quarter. The spread of COVID-19 triggered a massive drop in medical procedures considered “elective” and non-emergent, as well as a drop in standard wellness checkups. Diane Swonk, the chief economist at Grant Thornton, said about the significant drop that it “really gets to how this isn’t just a numbers game about [the virus]. There’s collateral damage to the one sector that you would intuitively think would benefit most from a health crisis, and it’s losing money and losing jobs… because you displaced activity that was profitable.” In March alone, over 42,000 health-care jobs were cut, even as the spread of the virus was escalating. Dentist offices saw the largest declines, with family and general physician offices seeing significant drops as well.

7. Consumer spending in the U.S. also plunged in March, despite a surge in online purchasing. Consumers saw a 2% decline in personal incomes while their spending, which makes up the most significant portion of the U.S. GDP, dropped by 7.5%. The Commerce Department said that the dip in spending was the sharpest monthly drop on records dating back to 1959, far exceeding the previous record decline of 2.1% in January of 1987. The report noted that consumers had “cancelled, restricted, or redirected their spending” as a result of the pandemic. Lydia Boussour, a senior U.S. economist at Oxford Economics, said “The coronavirus fear, the social distancing measures, the financial volatility and plummeting confidence have taken a severe toll on consumers’ ability and willingness to spend.” The fear is that consumers will not feel comfortable parting with their cash until a vaccine against the virus becomes widely available.

8. Clothing company J. Crew became the second retailer reported to be preparing to file for bankruptcy over a weekend. Last weekend Neiman Marcus was reported to be submitting bankruptcy filings. J. Crew, much like Neiman Marcus and J.C. Penney, was already struggling under massive debt loads prior to the outbreak and ensuing pandemic. The global lockdowns put in place to contain the spread of the virus have only made conditions worse for the privately held company as it watched the foot traffic, and thus the accompanying revenue stream, disappear from its brick and mortar stores.

9. The backlash against China continued this week, with outspoken former White House chief strategist Steve Bannon saying on CNBC’s “Squawk Box” Thursday that “The Chinese Communist Party is going to have to pay. I think the world’s going to hold them in judgement, and that judgement is not going to be very pretty.” Bannon went on to say that “They owe trillions, if not tens of trillions of dollars” for their mishandling of the crisis.

10. U.S. President Donald J. Trump said on Thursday that his administration may be contemplating new tariffs on Beijing. National Economic Council director Larry Kudlow told CNBC on Friday that the U.S. would hold China accountable for its failure in containing the coronavirus which began in Wuhan and spread from there into the rest of the world. Kudlow said “On the China business, it’s up in the air. They are going to be held accountable for it. There’s no question about that. How, when, where and why – I’m going to leave that up to the president.” Kudlow continued, saying “With respect to future tariff decisions and other measures, that’s going to be up to the president.”

Kudlow also commented on reports that the U.S. was taking steps to move parts of its supply chain, particularly in the medical field, out of China and back to the U.S., saying: “We’d like these supply chains to be based here. I think to some extent we’ve seen the importance of that.” Kudlow also denied reports that had surfaced earlier in the week that the Trump administration may be considering refusing to pay on government debt held by China in retaliation for how the pandemic was handled by Beijing, saying that the “Full faith and credit of the United States’ debt obligation is sacrosanct. Absolutely sacrosanct.”

11. The eurozone economy saw its Gross Domestic Product drop by 3.8% in the first quarter, compared to the last three months of 2019. Lockdowns imposed as the 19-member bloc in an attempt to contain the spread of COVID-19 took massive tolls on the four largest economies of the region. Germany, France, Spain, and Italy are among the top six countries in the world with the highest number of cases of infections. All non-essential services in these areas have been shut down for nearly a month, if not more in the case of Italy and the economic damage from that is only now beginning to be tallied.

12. Crude oil saw positive moves this week, climbing out of the hole it had plunged into last week as gains in U.S. crude inventories came in lower than expected. The start of output cuts by OPEC+ also kicked in as the cartel attempts to offset the massive drop in fuel demand brought about by the spread of COVID-19. On Friday, Brent crude for July delivery was up to $26.32 per barrel, following on the heels of a 12% gain on Thursday. U.S. West Texas Intermediate for June delivery, was up to $19.30 per barrel, following on the heels of a 25% gain in its previous session. As the world begins to tentatively reopen its economies, oil demand could see an increase, but the massive amount of crude that has gone into storage in the intervening months will likely take a significant amount of time to work through. The International Energy Agency, in what it described as the “biggest shock since World War II”, said on Thursday that it expects global energy demand to plunge this year as a result of the pandemic.

13. The euro spent much of the week in a slow climb against the U.S. dollar. The euro attempted to surge higher on Tuesday, but lost momentum, slowing its ascent and resuming its slow rise through Thursday afternoon. Late on Thursday, the euro surged higher, climbing near vertically for a brief time and then resuming a steady climb that lasted through Friday. The euro looks set to close out the week to the upside against the U.S. dollar. The Japanese yen moved erratically against the U.S. dollar for much of the week. The yen drifted higher at the start of trading, then bounced briefly lower before beginning a jagged upward move that saw the yen touch its highs for the week by Thursday. The yen drifted mostly sideways, albeit in a series of spikes and dips but plunged lower late on Thursday, dropping back near its opening level for the week. The yen resumed its rise on Friday and despite a late-morning dip, appears set to close out the week to the upside against the U.S. dollar.

The world is watching closely to see how the U.S., the country with the most confirmed cases of COVID-19, will handle the slow reopening of its economy. Many state-mandated lockdowns were set to expire on April 30 and some of those with the least number of cases have already begun easing the restrictions on their citizens that triggered shutdowns and shelter-in-place orders as the virus spread.

The state of Georgia was among the first to ease restrictions, but many others are anxious to get their citizens back to work and see them contributing to their local economies again.

Germany saw a rise in its coronavirus cases after it began easing its restrictions last week, and health officials are monitoring the situation in the U.S. in hopes that a sudden surge in new cases will not arise. Economists fear that such a rise could lead to an extension or reinstatement of shutdowns for what would likely be many additional weeks.

The world’s economies are all beginning to report their first true sets of economic data since the pandemic began and the picture is looking bleak across the board.

Gross Domestic Product around the globe is plunging as spending, by both consumer and industrial sectors, dries up. Manufacturing data out of China still shows contraction in the sector, even though they were one of the first countries to get back to work, having been the first to face the virus. China has seen a massive decrease in export demand as the rest of the world enacted draconian measures that restricted movement of people and transfer of goods in an effort to halt further spread of the disease. The growing backlash against China’s alleged failures in containing the virus in its early stages could play a role in modifying consumer attitude towards products made or assembled in China. The same consumers that drove a shift in manufacturing to China’s shores are growing more and more frustrated at their lack of freedom during the continued global lockdowns and many now view China, and thus Chinese-made goods, in a negative light. Calls for some sort of retaliation against, or compensation from, China over its actions and lack of transparency during the early days of the crisis after it identified the virus appear to be growing louder.

Reports surfaced this week that the U.S. might even be considering canceling some of the debt that it had issued to China in retaliation for the economic damage caused by the virus, but those rumors were quickly dismissed as being too damaging to the U.S. dollar’s status as the world’s reserve currency. Beijing continues to maintain that it acted in good faith after identifying the virus and confirming its extreme transmissibility and has long maintained that it has been highly transparent and more than willing to share data and information as virus cases surged throughout the world.

As the world tentatively attempts to reboot its collective economies, cautious investors continue to seek out ways to ensure that their portfolios remain diversified against further downturns in equity markets. Physical precious metals continue to be viewed as safe haven assets in times geopolitical and economic turmoil such as the world is experiencing now.

Remember that precious metals should always be viewed as a long-term investment and that the key to profitability through the ownership of physical precious metals is to actually acquire and own the physical products and to hold them for the long term. Always remember that you should never overextend your ability to maintain ownership of your precious metals over the long term.

Trading DepartmentPrecious Metals International, Ltd.

Friday to Friday Close (New York Closing Prices)

Apr. 24th2020

May 1st2020

Net Change

Gold

$1719.10

$1694.40

(24.70) – 1.44%

Silver

$15.17

$14.86

(0.31) – 2.04%

Platinum

$763.30

$762.65

(0.65) – 0.09%

Palladium

$2037.80

$1917.80

(120.00) – 5.89%

Dow Jones

23775.27

23723.69

(51.58) – 0.22%

Month End to Month End Close

Mar. 31st2020

Apr. 30th2020

Net Change

Gold

$1581.60

$1685.20

103.60 + 6.55%

Silver

$13.99

$14.87

0.88 + 6.29%

Platinum

$733.40

$785.50

52.10 + 7.10%

Palladium

$2414.80

$1986.00

(428.80) – 17.76%

Dow Jones

21917.16

24345.72

2428.56 + 11.08%

Previous year Comparisons

May 3rd2019

May 1st2020

Net Change

Gold

$1280.20

$1694.40

432.10 + 33.57%

Silver

$14.96

$14.86

0.12 + 0.80%

Platinum

$872.05

$762.65

(136.55) – 15.17%

Palladium

$1368.00

$1917.80

570.60 + 38.89%

Dow Jones

26504.95

23723.69

(2781.26) – 10.49%

Here are your Short Term Support and Resistance Levels for the upcoming week.